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New Zealand Energy Corp. has reported that at the end of February 2014, the Company was producing light, high-quality oil from nine wells in the Taranaki Basin of New Zealand's North Island.
Consistent with guidance in the Company's previous production update, no new wells were added in February but substantial progress was made in order to prepare four existing wells to further add to oil production. As a result of optimization efforts on existing wells, production for February 2014 increased 11% over January's average, with an average of 228 barrels of oil per day in February compared to 202 bbl/d in January. In addition, the Company's Waitapu-2 well re-commenced production on March 3.
John Proust, Chief Executive Officer and Director of NZEC, commented: "NZEC remains focused on its primary objectives of increasing production and cash flow while reducing costs. The Company is committed to providing monthly updates so that investors can track our progress. While production rates continue to fluctuate as a result of optimization and workover activities on the wells, monthly production averages are the best representation of our corporate production. During March and early April NZEC will systematically complete workover activities on a number of existing wells that are expected to add to the Company's oil production."
Workover activities at existing wells on the Eltham Permit and TWN Licenses are on track as outlined in the February 4, 2014 press release. Following the mobilization of a service rig on February 17, NZEC completed workover activities on the Waitapu-2 well as well as wireline activities on the Waihapa-1B well. Waitapu-2 has been pumping since February 27 and produced load fluid (water that was pumped into the well during workover activities) for a number of days. On March 3 the well started to produce oil along with load fluid and is expected to finish cleaning up the load fluid in the next few days. The TWN Joint Arrangement ("TWN JA") (NZEC and L&M Energy, joint owners of the TWN Licenses) also identified a cost savings opportunity on the Waihapa-8 well. Initially expected to require installation of a dedicated downhole pump for artificial lift, further review determined that the well can likely be produced by heating gas at the wellhead and using existing gas lift. If successful, this should result in savings of approximately NZ$200,000 net to NZEC and accelerate Waihapa-8 production to March 2014.
The TWN JA also advanced the Waihapa-1B well in February by removing a plug from the well and commencing evaluation of the potential to produce oil from the Tikorangi Formation. If successful, Tikorangi production could resume in March 2014, with the alternative of an uphole completion in the Mt. Messenger Formation. The TWN JA also commenced installation of artificial lift on the Waihapa-2 well with the expectation of achieving production from the Mt. Messenger Formation in April 2014.
During February the TWN JA entered into an agreement with a gas marketing counterparty to transport gas along a section of the TAW gas pipeline for a term of four years with a five-year right of renewal. The arrangement is expected to generate between NZ$250,000 and NZ$1million revenue per year (net to NZEC). First gas is expected to flow during Q2-2014.
Third-party revenue at the Waihapa Production Station year to date totals approximately NZ$346,000 net to NZEC.
Upcoming Catalysts
- Waitapu-2: Contributing oil production as of March 3
- Waihapa-8: Production from Mt. Messenger Formation anticipated in March 2014 using existing gas lift
- Waihapa-1B: Continuing to evaluate production potential from Tikorangi Formation. If successful, Tikorangi production could resume in March 2014. If unsuccessful, the TWN JA will proceed to complete the well uphole in Mt. Messenger Formation
- Waihapa-2: Artificial lift installation underway with production anticipated from Mt. Messenger Formation in April 2014
- Toko-2B: ESP installation targeted for March 2014, with a production increase anticipated in April 2014
NZEC and L&M Energy applied to New Zealand Petroleum & Minerals and were granted an extension to drill the Alton Permit Horoi commitment well by June 22, 2014.